Barclays Sells First Uridashi Notes Tied to Nvidia as S&P Gains

The bank, the sixth-largest issuer last year of the
securities denominated in currencies other than the yen and sold
to Japanese individual investors, issued $12.2 million of
reverse-convertible notes tied to shares of the U.S. chipmaker
on Jan. 21, according to Bloomberg data going back to 1997.

Barclays joins Deutsche Bank AG (DBK) in selling uridashi notes
tracking single U.S. stocks after $75 million of such securities
were issued last year. The Standard & Poor’s 500 Index advanced
58 percent in four years since the end of 2008, the year when
the collapse of Lehman Brothers Holdings Inc. roiled financial
markets.

“Naturally, they’re bullish products,” Naohide Une, head
of equity-derivatives trading at Goldman Sachs Japan Co., said
by phone. “If the market doesn’t go down and gradually goes
higher, then they are good yield-enhancement products for retail
investors. The U.S. situation fits into the theme well.”

In return for paying high coupons, reverse convertibles
convert into their underlying stocks at maturity if the shares
plummet, potentially eroding the buyers’ principal.

High Coupons

Barclays’s five-month notes yield 9.02 percent monthly as
long as Nvidia shares are at or above 90 percent of the stock’s
Jan. 31 closing, while the coupon drops to 0.5 percent if the
price falls by more than the 10 percent buffer, according to the
prospectus for the product. If the shares gain more than 10
percent, the notes are redeemed at their full value.

Should the stock close below 90 percent of its initial
value on any day between Feb. 1 and 10 trading days before
expiration on June 21, the notes convert into the Nvidia stock
at maturity, according to the marketing materials.

Nvidia shares closed at $12.26 on Jan. 31, after losing 34
percent of their value through last year since the end of 2009.
In the latest earnings release in November, the company reported
quarterly profit surpassing analysts’ estimates, helped by sales
of chips used in tablet devices.

Marina Totsuka, a Tokyo-based spokeswoman for Barclays,
declined to comment on the reasons it picked the stock for the
notes.

Deutsche Bank was the sole issuer of reverse convertibles
tied to individual U.S. stocks in the uridashi market last year,
selling a total of $75.47 million of securities linked to Morgan
Stanley (MS), Hewlett-Packard Co. (HPQ), and VMware Inc. (VMW), according to
Bloomberg data. The rest of the $2 billion of single-stock
reverse convertibles issued last year were tied to Japanese
companies, the data show.